The negative effects of the pandemic have been well documented, but a new working research paper from National Bureau of Economic Research indicates that trends such as increased work flexibility rates in 2021 helped push U.S. fertility rates up 6.2 percent from pre-pandemic levels. And if you’re among those who are planning to grow your family, you have some company: According to the 2022 Northwestern Mutual Great Realization survey, 21 percent of people who plan to make major life changes over the next two years say one of them is having kids.
21%
of people surveyed who say they plan to make some major life changes cite having kids as one.
— 2022 Northwestern Mutual Great Realization Survey
But amid the joy of seeing how much the baby is growing as you pick out cute onesies, there’s also the realization that life’s about to change in a major way — not only emotionally, but also financially.
Not to worry. Our checklist for how to financially prepare for a baby in nine months can help you get your finances in order by the time baby arrives. That way, you can spend more time choosing the nursery theme and less time stressing over whether you’re ready for your new addition.
Month 1: Have a money talk with your partner
There are some important conversations you and your partner should have to inform many of the financial decisions you will make in the coming months and years when it comes to your child. Remember that any decisions you make now aren’t set in stone — but the sooner you can discuss your feelings, the better. Here are a few questions to help get you started.
- If your child goes to college, do you want to set up a savings plan to pay for some, most or all of it?
- Will both of you continue to work? If one parent stops working, do you expect it to be a permanent change or a temporary one?
What do you want to do with your child while they are still young? While you may make these kinds of decisions on the fly, kindergarten and middle school will be here before you know it. So, if you have an idea now about what kinds of things you want them to experience, consider discussing them early so you can start a plan to help make it happen.
Month 2: Create a new budget
A baby changes your life — and your budget. Now is the time to start thinking about new costs, both immediate and to come, and the ones you’ll leave behind. For instance, after baby arrives, you’re probably going to pause on going out as much; this is a place you’re likely to find savings. On the flip side, you'll have to buy diapers, baby wipes, food, etc. (and it adds up quickly).
First and foremost, you’re likely to have some immediate expenses:
- The hospital bill.Even with the best insurance, you’re looking at a substantial bill just for having the baby.
- Your leave. More and more companies are offering paid maternity and even paternity leave. But if you’ll be on the hook for a portion or all of your leave, make sure you’re setting aside money now to help make up for that lost income later.
- Baby items. A baby shower may cover a lot of the big-ticket items you’ll need, like a stroller or a car seat. But there will still be a lot of purchases, from diapers to high chairs, that you may have to make on your own.
In addition to these big one-time expenses, you’ll have a lot of future ongoing costs, including increased insurance and health care costs. Oh, and if both parents are working, you’ll need to plan for child care.
There is some good news: You do get a little help from Uncle Sam once you become a parent. Having a baby qualifies you for a tax credit — currently $2,000 per child — among other tax benefits.
Month 3: Build your emergency fund
An emergency fund is a crucial part of financial planning. Having one can mean the difference between putting off important goals when the furnace breaks or being able to pay for repairs without worry. It’s a good idea to save at least six months of your expenses to cover these types of unexpected costs. Make sure your emergency fund is in a good place. If you’re planning to dip into it for baby costs, have a plan to replenish it. If you haven’t started an emergency fund yet, now is the time.
Month 4: Check in on life and disability insurance
Hopefully you got disability insurance when you started working. Perhaps you put some life insurance in place when you got married or bought a home. If you already have policies in place, that’s great.
But spend some time this month reviewing what you have to make sure it’s still right for your needs. If you don’t have life and disability insurance, now is the time to get it. With a baby on the way, you have someone who will depend on your income for the next 20 years or more. Life and disability insurance can give you peace of mind that your growing family will be taken care of if something happens to you.
Month 5: Make a plan for debt
Debt is a reality for most of us — even when we’re not buying new baby things while balancing hospital bills. Don’t worry if you have some debt or even accumulate some during this time. Your goal should be to have a plan to manage the best ways to pay it off.
Month 6: Take a pulse on retirement and other financial goals
Your focus right now is on your baby’s next few years. But before you know it, baby will be grown up and self-sufficient. So make sure you’re balancing what you need today with what you want tomorrow. That means this is a good time to check in on your plan for your goals, including retirement. It can seem like a lot to think about right now, but a financial advisor can help you balance what you want today with your goals for tomorrow.
Month 7: Start your estate plan
Many people think estate planning is something you do when you’re a multimillionaire. But the truth is, every parent should have one. Without one, a court would determine what happens to your child if both you and your spouse were to die, and who would manage any money you leave behind for them. It’s not a particularly pleasant thing to think about, but it’s also something you don’t want to leave to chance.
Your estate plan will let you make decisions about who will care for your children. You can also specify how any money that you leave for your children — perhaps from a life insurance payout — is managed and eventually passed on to them. (Without an estate plan, they get the money when they reach a certain age, usually 18.)
Month 8: Relax
You’ve done a lot to set yourself up for your baby. This is the last month before the chaos of an infant begins. Use this month to enjoy some time and get ready for what’s to come — maybe even indulge in a splurge.
Month 9: Set up some financial accounts for your child
Once your child is born, make sure to get him or her a Social Security number, which you’ll need before you can open any financial accounts on your child’s behalf. Here are a few you may want to consider opening soon after the delivery.
- Traditional savings account. Typically, for a child, you open a custodial account, which means it’s in the child’s name but you have control of it until they reach the age of majority, often age 18. With a savings account, if someone gives your child money or a check, this gives you a place to stash that gift away.
- College savings account. If you’re planning to help your child pay for college, there are several college savings options that allow you to save for that now. A 529 plan is one of the most popular options given the many tax benefits it can provide.
- Life insurance. You and your spouse may have your own policies, but you may want to consider a life insurance policy on your child as well. While it may seem like something you don’t need, there are a number of benefits you may not have thought of that could help your child later in life.
This checklist is a good start to prepare financially for a baby. If you’d like some additional help, now can also be a good time to talk to a financial advisor to ensure you’ve covered all your financial planning bases, both for now and after baby has grown.
